Banking giant UBS is buying its smaller rival Credit Suisse in an effort to avoid further market-shaking turmoil in global banking, Swiss President Alain Berset announced on Sunday night. <\/p>\n\n\n\n
Swiss president Alain Berset, who did not specify a value of the deal, called the announcement \u201cone of great breadth for the stability of international finance. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.\u201d<\/p>\n\n\n\n
Credit Suisse is designated by the Financial Stability Board, an international body that monitors the global financial system, as one of the world\u2019s globally systemic important banks. This means regulators believe its uncontrolled failure would lead to ripples throughout the financial system not unlike the collapse of Lehman Brothers 15 years ago.<\/p>\n\n\n\n
Sunday\u2019s news conference follows the collapse of two large U.S. banks<\/strong> last week that spurred a frantic, broad response<\/strong> from the U.S. government<\/strong> to prevent any further bank panics. Still, global financial markets have been on edge since Credit Suisse\u2019s share price began plummeting this week. <\/p>\n\n\n\n The 167-year-old Credit Suisse already\u00a0received a $50 billion<\/strong>\u00a0(54 million Swiss francs) loan from the Swiss National Bank, which briefly caused a rally in the bank\u2019s stock price. Yet the move did not appear to be enough to stem an outflow of deposits, according to news reports.<\/p>\n\n\n\n Still, many of Credit Suisse\u2019s problems are unique<\/strong> and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to a significant rescue effort<\/strong> by the Federal Deposit Insurance Corporation and the Federal Reserve<\/strong>. As a result, their downfall does not necessarily signal the start of a financial crisis similar to what occurred in 2008. <\/p>\n\n\n\n The deal caps a highly volatile week for Credit Suisse, most notably on Wednesday<\/strong> when its shares plunged to a record low after its largest investor, the Saudi National Bank, said it wouldn\u2019t invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10%. <\/p>\n\n\n\n On Friday, shares dropped 8% to close at 1.86 francs ($2) on the Swiss exchange. The stock has seen a long downward slide: It traded at more than 80 francs in 2007.<\/p>\n\n\n\n Its current troubles began after Credit Suisse reported on Tuesday that managers had identified \u201cmaterial weaknesses\u201d in the bank\u2019s internal controls on financial reporting as of the end of last year. That fanned fears that Credit Suisse would be the next domino to fall. <\/p>\n\n\n\n While smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, with $1.4 trillion assets under management. The firm has significant trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a major advisor for global companies in mergers and acquisitions. Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did. <\/p>\n\n\n\n